A senior House Democrat threatened banks that if they don’t volunteer to save more homeowners from foreclosure, Congress will make them.
In a sternly worded statement, Rep. Barney Frank said Congress will revive legislation that would let bankruptcy judges write down a person’s monthly mortgage payment if the number of loan modifications remains low.
Frank, chairman of the House Financial Services Committee, also said his committee won’t consider legislation to help banks lend unless there is a “significant increase” in mortgage modifications.
Frank’s statement was aimed at adding momentum to a deal struck Tuesday between Treasury Secretary Timothy Geithner and more than two dozen mortgage companies. The two sides agreed to set the goal of adjusting 500,000 loans by Nov. 1.
But it was far from clear whether that would happen.
Loan servicers say they are still trying to play catch up to a deluge of customer requests by hiring and training thousands of new employees. Banks also are trying to sort through which customers face a legitimate financial hardship.
Also, many loans have been bundled and sold to investors as securities, complicating efforts to modify the terms.
Congress tried earlier this spring to pass legislation that would give people a chance to keep their homes by filing for bankruptcy. But while President Barack Obama said he supported the measure, he did little to see it through and it was defeated amid an aggressive lobbying effort by banks.
The measure failed in the Senate by a 45-51 vote, falling 15 votes short of the 60 needed to overcome procedural hurdles.
TUESDAY MEETING 7/28/09
The Obama administration, scrambling to get its main housing initiative on track, extracted a pledge from 25 mortgage company executives to improve their efforts to assist borrowers in danger of foreclosure.
In an all-day series of meetings at the Treasury Department, government officials reached a verbal agreement with the executives for a new goal of about 500,000 loan modifications by Nov. 1 and stressed the program’s urgency.
The sessions came amid concerns that the Obama administration will fall far short of its original goal of helping up to 3 million to 4 million troubled borrowers with modified loans.
As of this week, only about 200,000 borrowers were enrolled in three-month trial loan modifications, out of about 370,000 who were offered modifications by mortgage companies.
“Today’s meeting was an opportunity to identify ways to accelerate the program and bring relief faster,” Treasury Secretary Timothy Geithner said in a statement.
But mortgage companies also say the Obama administration – which announced the program in February – left the public with the impression that the program would be instantly available.
“It was very difficult as an industry as a whole to try to live up to those expectations,” said Dan Frahm, a Bank of America spokesman, who described Tuesday’s meeting as a “realistic” exchange about how the industry can improve its efforts and possibly expand the loan modification effort to more borrowers.
For months, borrowers, housing counselors and activist groups alike have complained that the process is a confusing, bureaucratic nightmare.
“There needs to be a lot more accountability and oversight,” said Brenda Muniz, legislative director for the community group ACORN, which has been holding protests around the country to draw attention to the slow progress of the administration’s plan.
Mortgage companies, she said, are “doing things that are just outright prohibited” under the plan.
Housing counselors say borrowers are being charged upfront fees and given inaccurate or confusing information about the program. The delays are long and, in some cases, lenders continue the foreclosure process while loans are being reviewed for a modification.
On Tuesday, an activist group in Minnesota filed a lawsuit seeking to stop home foreclosures in that state. Mark Ireland, an attorney with the Minnesota-based Foreclosure Law Relief Project, said the government has failed to establish the procedures needed to ensure the fair and uniform administration of the program. Loan servicers are not required to tell a homeowner why they were denied a loan modification.
“Decisions are made under a cloak of secrecy and there is no formal way to challenge these decisions,” Ireland said.
Even for those who are accepted, the process is often painful.
Alfred Robinson, 41, a bus driver in Kansas City, Mo. finally got a loan modification this month after a two-month struggle. He originally was told in early May that his income was too high to qualify and was offered a different — and much less favorable — loan modification by Washington Mutual, now owned by JPMorgan Chase & Co.
But two months later, the lender reversed course and offered him the Obama plan — that would lower his payment to about $950 a month. “They just dropped it a hundred bucks,” he said. A Chase spokesman declined to comment.
One reason progress has been sluggish is that loan servicers have had to hire and train thousands of employees. The loans have been bundled and sold to hundreds of investors as securities, which often have differing rules about loan modifications.
Plus, mortgage companies have been swamped with thousands of calls from borrowers who want to take advantage of the program, and must sort out who is facing a legitimate financial hardship.
Many servicers didn’t get set up to deal with the surge in problem loans and modifications until this year, said Thomas Lawler, a housing economist in Northern Virginia.
That, he said, “is pretty depressing because the problems have been going on for more than two years … It’s a bit of an indictment of the whole mortgage servicing industry.”
The industry, meanwhile, says the Obama administration’s program isn’t exactly simple to set up. It requires that mortgage companies verify borrowers incomes and submit numerous forms to the federal government.
“It’s not the most streamlined process,” said Paul Leonard, director of government affairs at the Housing Policy Council, a mortgage industry group.
Under the program, servicers can pocket up to $4,500 for each loan they modify. But they won’t start to be paid until homeowners have made on-time payments for three months.
If the program doesn’t kick in high-gear soon, the recent optimism about a real estate and economic recovery could fade as more borrowers fall into foreclosure, putting more downward pressure on home prices.
“Foreclosures are still rapidly escalating,” said Andrew Jakabovics of the Center for American Progress, a think tank with close ties to the Obama administration. “If we don’t get a handle on that … the economy is going to have a difficult time recovering.”
Source: The Associated Press